The primary and additional age rebate is available to all South African individual taxpayers. The rebate is not reduced where a person has taxable income for less than the standard South African tax year. The rebate is given against the tax calculated and not against the actual income. The only instance where the rate is reduced is on death of the taxpayer.

Tax Calculation

Taxable income: R 200,000

Take from the tax table above the column into which the amount falls. This will be:

Income exceeding …

But Below

Tax

R 132,000

R 210,000

R 23,760 + 25% of the amount above R132,000

Your tax computation is on the first R200,000:

R 23,760

On the balance (R200,000 less R132,000) at 25%:

R 19,040

Total

R 42,800

Rebate (taxpayer under 65)

(R 9,756)

Tax payable

R 33,044

Taxable income: R 800,000

Take from the tax table above the column into which the amount falls. This will be:

Income exceeding …

But Below

Tax

R 525,000

R 152,960 + 40% of the amount above 525,000

Your tax computation is on the first R525,000:

R 152,960

On the balance (R800,000 less R525,000) at 40%:

R 110,000

Total

R 262,960

Rebate (taxpayer under 65)

(R 9,756)

Tax payable

R 253,204

Interest Exemption

Individuals under 65

R 21,000 per annum

Individuals over 65

R 30,000 per annum

Special rules apply to foreign interest (interest earned on bank account outside South Africa) as well as to individuals who are not tax resident in South Africa. Foreign interest is only exempt for the first R3,500 and this R3,500 must first be used to exempt foreign dividends. See below for non-residents.

Dividends Exemption

South African dividends

Exempt. It must still be disclosed in the tax return

Foreign dividends from a foreign company in which you hold more than 25%

Exempt

Other foreign dividends

Taxable subject to R3,500 exemption

South African dividends paid to non resident taxpayers

Exempt

Medical Deduction

Under 65

7.5% of taxable income

Under 65 and physically handicapped (taxpayer or dependents)

Unlimited

Over 65

Unlimited

Taxpayers under 65 are not taxed on (as a fringe benefit) or may deduct monthly contributions to medical schemes up to R625 for each of the first two persons covered by the scheme and then R380 for each additional member.

Therefore, where the employer pays a total contribution of R1,000 for an employee towards a medical aid plan and one person is covered (the employee), the taxable fringe benefit will be R 375.

Where a self employed individual contributes for two people to a medical aid at a rate of R2000 per month, the person can claim a tax deduction of R1,250 per month.

SARS has issued a detailed guide on medical aid and medical costs: Tax Guide on the Deduction of Medical Expenses (Issue 2, 2008) which covers the complete topic in 28 pages.

Pension Contribution

Contributions to an approved South African pension fund:

The greater of R 1,750; or

7.5% of remuneration that qualifies for pension deduction

Arrear contributions of R1,800 per annum where limits not used

Pension funds are often all considered not the best and should your employer have one the wisdom thereof should be reconsidered. This statement would not apply to where you have membership to a defined benefit fund.

Retirement Annuity

Contributions to an approved South African retirement annuity fund:

The greater of R 1,750; or

R 3,500 less qualifying pension contributions; or

15% of net income minus income from retirement funding employment

Care should be taken before you buy a retirement annuity fund on the basis of having the tax deduction. Some financial advisors claim that you will have the tax deduction and then later you find out that only a small portion qualifies.

Donations Exemption

The deduction is limited to 10% of an individual’s taxable income to a public benefit organisation. Such an organisation must be specifically approved by the South African Revenue Service and they must issue with their receipt confirming your contribution. See Donations Tax below.

The fringe benefit that will be added to an employee for the private usage of a business vehicle is 2.5% of the determined value of the vehicle. A second company vehicle is taxed at 4% on the determined value.

There are exemptions available where the employee uses the vehicle within limits. Also, where less than 10,000km private travel is done, a reduction in fringe benefit tax is possible.

Housing

Non-resident employees should see Expatriates regarding their housing benefit.

Where an employer provides an employee with a house, the fringe benefit value is normally the higher of the cost to the employer or a formula calculated on the employee’s salary. Let us know should you require the value calculated.

Subsistence Allowance

Subsistence may be claimed where an employee with his normal home in South Africa spends a night away from home on business for the employer. Where a subsistence allowance is paid there is no PAYE deduction on the amount. Certain deemed amounts are expended on such business trips. It must be remembered that these deemed amounts are only claimable where an employer actually pays an employee a subsistence allowance. The deemed claims are limited to the amount of subsistence allowance paid. These deemed amounts were updated and with effect from March 2009:

Travel outside South Africa: This is determined on a country-to-country basis. SARS has the comprehensive list of countries and the daily rates on its website (www.sars.gov.za)

Every employer in South Africa must withhold PAYE (Pay-as-you-earn) from remuneration paid to an employee. The rate of withholding is determined by the South African Revenue Service and is published in their EMP10 Guidelines. Tax withheld must be paid on or before the 7th day after the month in which remuneration was paid.

It is the employer’s obligation to ensure the correct withholding of PAYE. Where an employer has not withheld the correct amount, it becomes a debt to the South African Revenue Service. When audited, employers often find their tax exposures to be very large and SARS is on a drive to audit all employers.

At the end of a tax year the employer must report the PAYE to SARS on an IRP501 form. This form shows what PAYE was withheld per employee. The income and benefits paid to an employee and the PAYE withheld is also shown on an IRP5 certificate that is handed to the employee. This document is filed by the employee with his or her personal income tax return.

Employees’ tax is a complex area and specific questions will be easier to answer than attempting to do the topic justice with a more detailed explanation. See Your tax questions.

Unemployment Insurance Fund - UIF

The rules applicable to who pays UIF and the methods of collecting this levy are very similar to PAYE. Employer and employees must contribute to UIF at a rate of 1% respectively. The limits are capped at R12,478 actual contribution for the employer and employee respectively.

Skills Development Levy - SDL

Skills Development Levy (SDL) operates also on similar rules that PAYE and many of the definitions are borrowed from the Income Tax Act. Only employers pay SDL and the rate is 1% of the same employee income on which PAYE is calculated. The payment system is through the same channels as PAYE. Employers paying annual remuneration of less than R500 000 are exempt from paying SDL.

Residency Test

The residency test is very important for any foreigner coming to South Africa or for any South African going abroad. The reasons being primarily that:

When you are resident of South Africa you pay tax on your worldwide income and as a non-resident you only pay tax on your South African “source” income and certain beneficial exemptions apply; and

When you loose your South African tax residency, for instance you go work abroad and your circumstances dictate that you become non-resident, there is a deemed disposal of certain of your assets for capital gains tax purposes and this may cause some cash flow problems.

An individual will be tax resident in South Africa by applying the following tests:

Firstly, you will never be tax resident in South Africa should you be tax resident, in terms of a double tax agreement entered between South Africa and a tax treaty partner, in the partner country. An example will be where you go and work in the United Kingdom and you become a full tax resident there while you do not have available accommodation in South Africa. The double tax treaty between South Africa and the United Kingdom will then determine that you are exclusively resident in the United Kingdom and the result is that you become non-resident for South African tax purposes.

Provided the above does not apply, you will be South African tax resident as long as you are “ordinarily resident” in South Africa. The meaning of “ordinarily resident” is that you consider South Africa your real home and plan to return to South Africa. This is the reason why many South Africans overseas remain “ordinarily resident” in South Africa and also the reason why foreign workers coming to South Africa on expatriate assignments ever become “ordinarily resident”.

When you are not treaty resident in another country and you are not “ordinarily resident” in South Africa, it is still possible for you to be tax resident because of a days test. The test determines whether you are tax resident in South Africa for a particular year of assessment and has two legs:

You are resident if you are, measured over six tax years, more than 91 days in of each of these years in South Africa; and

In the first five of these six years, you are more than 915 days in South Africa

Should the test be met you will be tax resident in South Africa for the sixth tax year.

The South African Revenue Service now asks specific questions to the above effect in your personal income tax return and has become a lot more aware and active in enforcing the residency tests.

Double Tax Treaties

South Africa has quite an extensive network of double tax treaties with other countries. The treaties are there to prevent tax evasion and to ensure that South African taxpayers do not suffer double taxation. List of the double tax treaties are available on the South African Revenue Service website. Almost all of our treaties are schooled on the OECD Model Tax Treaty and international interpretations will therefore often be given thereto.

Foreign Tax Credit

Foreign tax credits are generally given where a South African tax resident is taxed on income that has already been taxed in another country under a source principle and where any double tax agreement between South Africa and that other country allows that country to tax the income.

We will therefore not give tax credits where we have the right to first collect tax on income. This is pretty standard in all tax systems internationally.

The amount of credit must be claimed in an individual’s income tax return and the amount of credit given is limited to tax on the income being taxed twice. This ensures that tax credits can never be claimed against income that South Africa has the exclusive taxing right on. Exemptions however do exist. Please contact us for details.

Earnings Exemption

South African resident taxpayers who work abroad still need to declare their foreign income in their individual income tax returns. This income can however be exempted form South African tax by claiming a tax exemption where certain conditions of absence have been met. These conditions are:

It must be employment income; and

The income must be earned while you were working outside South Africa; and

The time that you must have been outside South Africa on work must be more than 183 days in any 365 day period and of this 183 days 60 days of absence must have been continuous; and

The income must become taxable in your hands during the 365 days referred to in the previous point.

This is an important exemption and South Africans working abroad must plan the effect hereof carefully to ensure that they qualify for the exemption.

Estate Duty

When you are reading this section when you have to calculate estate duty it is probably to late. Estate duty should be planned well before death. The rate is 20% of the amount determined by the Act as subject to estate duty. There are various exemptions such as everything that goes to a surviving spouse. What ever remains is subject to a standard exemption of R3.5 million per estate.

Donations Tax

The following are exempt from transfer duty:

R100,000 per annum

Donations between spouses

Donations to public benefit organizations that have the necessary approvals

The rate otherwise is 20%.

Capital Gains Rate

The first R17,500 of an individual taxpayer’s capital gains for a tax year is exempt from capital gains tax. In year of death, this amount is increased to R120,000.

Of the balance of a person’s capital gains, 25% thereof is included in a person’s normal taxable income and taxed at the marginal tax rate. For instance, on a gain of R117,500 and a marginal rate of 40% (therefore the person has other income in excess of R525,000), the capital gains tax will be R117,500 less Exclusion (R17,500) of which 25% (R25,000) is included as taxable. With a marginal tax rate of 40% the effective tax is R25,000 times 40% and therefore R10,000.

The effective rate for companies is 14% and for trusts 20%.

Transfer Duty

Transfer to Normal Person:

First R500,000 of cost of immovable property

0%

R500,000 to R1,000,000

5% of the value above R500,000

R1,000,000 and above

R25,000 plus 8% of the value above R1,000,000

The rate for corporate entities and trusts is 8%

Transfer duty is paid where immovable property is acquired and the transaction is not subject to VAT. It also now applies to where the rights of ownership are transferred to immovable property where a company, close corporation or trusts are involved.